Yesterday I mentioned that the September Unemployment Report would be released today. From my perspective it would only spark a positive reaction. After the release, the S&P 500 jumped 5 points and it never looked back.
If the jobs report exceeded estimates (180,000), traders would rationalize that the economic recovery is on track. If the jobs report came in light (which it did), traders would blame it on the government shutdown. As it turns out, only 140,000 new jobs were created. The Street believes that this will keep the Fed on hold.
Central banks around the world are loose. I don’t see that changing anytime soon and it will provide a stiff tailwind. In the US, the Fed will not taper until the debt ceiling is extended by a year and Janet Yellen has a chance to get her feet wet.
The next round of debt ceiling debates will be more subdued. Republicans took a pounding in the polls and they risk losing the House and Senate in 2014 if they keep it up. The GOP will stop taking shots at Obamacare. They will push for entitlement reform, spending cuts, a tax holiday for repatriation and the Keystone pipeline. Democrats will push for higher taxes and they will try to close loopholes.
We have a couple of months before the continuing resolution (CR) and the debt ceiling become problematic. This is the meat of the year-end rally and earnings are in focus.
Netflix and VMware got the ball rolling today. The biggest leadership change will come from cyclicals. This morning, BHP posted better-than-expected results and basic materials are rebounding. Economic conditions in China continue to improve and the flash PMI’s on Thursday should be market friendly.
Domestic economic releases won’t mean much because of the government shutdown. That means they won’t stand in the way of this rally.
The biggest risk is a melt up. If the market gets ahead of itself we will see profit taking. We might be reaching that point soon if we keep surging higher.
I’ve been mentioning that SPY $175 was my first target and we’ve exceeded it today. I will use that as a stop. This does not mean that I am bearish; I’m just looking to lock in profits.
I am long from SPY $166 and $168. If the year ended right now, I would be happy with my gains. Given that mindset, it doesn’t make sense to take unnecessary risks.
If the market pulls back, I will reenter. SPY $173 was the previous high and that level represents support. I would like to get long there if I am stopped out and I would focus on cyclical stocks.
I am not getting bearish! Ride this wave as long as you can, but be prudent. The market is getting a little frothy and we’ve come a long way in the last two weeks.
Stocks surged higher this morning and they established a new all-time high. Since then, they have been retreating and resistance is building. Use $175 as your guide.